Trump’s Oil Tariffs Create Opportunities for European and Asian Refineries

Commodity

Economic

Summary:

Impact of U.S. Tariffs on Global Oil Trade

The U.S. decision to impose new tariffs on imported oil from Canada and Mexico is reshaping global energy markets, creating significant challenges for American refiners while offering a competitive advantage to refineries in Europe and Asia. Under the new policy announced by President Donald Trump, imports from Mexico will be taxed at 25%, while Canadian energy products face a 10% tariff. This move, which aims to address national security concerns related to fentanyl smuggling and illegal immigration, has been met with skepticism from industry experts, who warn of higher fuel prices for American consumers and potential disruptions in refining operations.

The U.S. heavily relies on heavier crude oil from Canada and Mexico to optimize its refining capacity. Industry analysts predict that these tariffs will increase costs for U.S. refiners, reducing their profit margins and possibly leading to lower production levels. In contrast, European and Asian refineries stand to benefit, as they can step in to supply refined petroleum products to the U.S. and capitalize on lower crude oil prices from disrupted suppliers.

European and Asian Refiners Gain a Competitive Edge

With U.S. refiners facing higher costs, European refineries are positioned to benefit from increased demand for diesel exports. The decline in U.S. diesel exports, which traditionally play a key role in global fuel markets, is expected to support refining margins in Europe. This shift is expected to be positive for European refiners but less favorable for European consumers, who may see higher gasoline prices as American demand for imports rises.

Asian refiners are also well-placed to take advantage of discounted crude oil from Mexico and Canada. Market analysts suggest that suppliers affected by the tariffs may lower prices to remain competitive, giving Asian refineries access to cheaper raw materials. Since many refineries in Asia are designed to process heavier crude, they are well-equipped to absorb displaced Mexican and Canadian oil.

The expansion of Canada’s Trans Mountain pipeline (TMX), which began operations in May 2024, further reinforces Asia’s strategic position. With TMX now capable of transporting an additional 590,000 barrels per day to Canada’s West Coast, China and other Asian countries could increase crude oil imports from Canada, potentially replacing supplies previously sourced from Venezuela and Saudi Arabia.

Challenges for U.S. Refiners and Consumers

For American refiners, the tariffs present significant hurdles. Data from the U.S. Energy Information Administration (EIA) indicates that Canadian and Mexican crude accounted for 28% of U.S. refinery feedstock in 2023, with Midwest refiners particularly dependent on Canadian oil. The shift away from these traditional suppliers will force refiners to seek alternatives, but not all facilities are equipped to handle lighter crude grades such as U.S. West Texas Intermediate (WTI).

While some U.S. refineries have upgraded to process more light crude, others still rely on heavier crude blends to maximize production efficiency. Analysts argue that substituting WTI for Canadian and Mexican oil could reduce refinery efficiency, leading to lower output and higher consumer prices.

The cost burden is expected to trickle down to American consumers, particularly in the Midwest, where refiners will likely pass tariff-related expenses onto gasoline prices. Some estimates suggest that gasoline prices in the region could rise by 20 to 25 cents per gallon, adding to inflationary pressures.

Strategic Shifts in the Global Oil Market

U.S. refiners have already begun stockpiling crude oil ahead of the tariff implementation, with record-high imports of Canadian crude reported in early January. However, since then, import volumes have begun to decline, suggesting that refiners are adjusting to the new cost structure.

Meanwhile, oil majors such as Chevron have reported weaker refining profits, with Q4 earnings falling below Wall Street expectations. The company’s downstream division, which includes refining operations, recorded its first quarterly loss since 2020, raising concerns about the profitability of U.S. refining in the new tariff environment.

Experts warn that if the tariffs remain in place, long-term competitiveness of U.S. refiners could be at risk, with potential reductions in refining capacity leading to higher domestic fuel prices.

A New Reality for the Global Oil Industry

Trump’s oil tariffs are reshaping global trade flows, making crude oil from Mexico and Canada less attractive to U.S. refiners while creating new opportunities for European and Asian markets. As American refineries struggle with increased costs, refiners in Asia and Europe are stepping in to capture market share, benefitting from cheaper feedstocks and higher demand for refined products.

While these changes may boost profitability for foreign refiners, they pose challenges for U.S. consumers, who may face higher gasoline and diesel prices as refiners adjust to the new cost landscape. The longer the tariffs remain in place, the more significant these shifts will become, potentially altering the structure of the global oil trade for years to come.

Source: AFP

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Warren Takunda

Economic

Global equity markets and commodity prices have fallen after China announced a targeted retaliation against the U.S., confirming a new trade war officially gets underway on Tuesday, February 04.

China-exposed proxies, such as the Australian Dollar, reflect these developments by extending near-term losses against most G10 peers.

The day brings new U.S. import tariffs imposed on Chinese goods and a Chinese retaliation: it will levy new tariffs on a range of American imports, including a 15% levy on coal and liquefied natural gas. Crude oil, agricultural machinery, large-displacement cars and pickup trucks now face a 10% tariff.

A number of U.S. companies were sanctioned as "unreliable entities", including Calvin Klein and Tommy Hilfiger owner PVH, as well as Illumina (a gene sequencing company).

The Chinese measures announced also include export control on tungsten-related materials, a crucial raw mineral of which China produces about 80% of the world's supply.

China is the first Trump target to refuse to seek compromise in the face of his threats. Earlier, Canada and Mexico agreed with the U.S. to bolster their border security forces and squeeze the flow of drugs and illegal migrants into the U.S., which pleased the new U.S. President.But it was not clear where China would have been able to negotiate away the tariffs as the issues Trump is seeking to address differ from those facing Canada and Mexico. Trump sees tariffs as a tool to 1) influence domestic outcomes, 2) raise revenues and 3) rebalance trade.

Objective one primarily covers Canada and Mexico, objectives two and three apply to China, and it's clear that here, there is limited room to negotiate.

"The U.S's actions seriously undermine the rules-based multilateral trading system, undermine the foundation of economic and trade cooperation between China and the United States, and disrupt the stability of global industrial and supply chains," China's Commerce Ministry said in a statement.

The dour tone in global markets confirms investors think we are only at the beginning of the global trade readjustment under Trump, and the threat of a universal tariff on all U.S. imports remains alive. For the Aussie Dollar, this poses more downside via its exposure to China.

That being said, the selloff is not dramatic and is a slow burn: Trump is clearly open to negotiation, and the threat of countermeasures by other countries will cause reason to tread carefully to avoid hurting domestic consumers.

Source: Poundsterlinglive

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Jason

The AUD/USD pair rebounded to 0.6199 on Tuesday, recovering some losses. Earlier in the week, the Australian dollar tested multi-year lows as investors distanced themselves from riskier assets amid concerns over US tariffs on Canada, Mexico, and China.

A reprieve came as US President Donald Trump delayed the implementation of tariffs on Canada and Mexico for one month while negotiating with both countries. This pause improved sentiment for risk currencies, including the Australian dollar.

Key factors influencing AUD/USD

Despite this temporary relief, uncertainty remains, particularly regarding China, Australia’s largest trading partner. The newly announced US tariffs on Chinese goods take effect today, which could have significant economic consequences. Any updates related to China directly impact Australia’s economy and currency movements.

Adding to the uncertainty, Trump is set to meet with Chinese President Xi Jinping this week. While China is keen to avoid escalating trade tensions, the US administration will likely use the situation strategically to its advantage. The outcome of these discussions could shape risk sentiment in global markets.

On the domestic front, Australia’s trade balance data for December is scheduled for release on Thursday. This report will provide insights into the health of Australia’s export-driven economy and could influence the Reserve Bank of Australia’s (RBA) policy stance.

Technical analysis of AUD/USD

On the H4 chart, AUD/USD previously formed a downside wave to 0.6088, followed by a correction to 0.6233. Today, the market is expected to initiate another downward wave towards 0.6077. A potential corrective move back to 0.6230 may follow, forming a consolidation range. If the pair breaks upwards from this range, another correction towards 0.6290 is possible. However, if it breaks downwards, the downward wave to 0.6077 will likely continue. The MACD indicator supports this scenario, with its signal line positioned above the zero mark but pointing sharply downwards, indicating strong bearish momentum.

On the H1 chart, AUD/USD established a consolidation range near 0.6160 before breaking upwards to complete a correction at 0.6230. The next move is expected to be a new downward wave targeting 0.6150. If this level is breached, the pair could extend losses towards 0.6077. The Stochastic oscillator confirms this bearish outlook, with its signal line below 80 and trending downwards towards 20, indicating growing downside pressure.

Conclusion

The Australian dollar has staged a modest recovery, but risks remain elevated due to ongoing US-China trade tensions and uncertainty surrounding Australia’s economic outlook. While short-term technical indicators suggest the potential for further downside, the key levels to watch are 0.6150 and 0.6077. Market participants will closely monitor Trump’s meeting with Xi Jinping and Australia’s trade balance data for further directional cues.

Source: ACTIONFOREX

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Warren Takunda

Economic

The Pound was one of the best-performing G10 currencies on the day U.S. President Donald Trump confirmed and then reversed tariffs on Canada and Mexico. It maintains that outperformance into Tuesday as U.S. tariffs on China come into force and China announces its retaliation.

"Sterling dodges tariff bullets," says Kit Juckes, lead FX analyst at Societe Generale.

"We remain constructive versus the bulk of G10 FX on our view that GBP is in the process of a secular recovery," says Kamal Sharma, FX strategist at Bank of America. "Downside risks have increased since the start of the year, but we think that much of the bad news is now priced in and there has been a subsequent cleansing of long positioning."

Traders have exited long positions in Sterling and piled into bets to the downside. Recent gains in the Pound suggest speculative currency traders did not anticipate this trade war resilience.

"Hedge funds raised GBP short positions last week to 10.5% of open interest, the highest since last April," explains Juckes.

The 0.62% daily gain in GBP/EUR was unusually large, suggesting a good deal of any reduction in speculative positioning occurred against the Euro.

Tariffs against Canada and Mexico were avoided due to last-minute concessions from the two countries, while China never really had an exit route.

The European Union will come into Trump's crosshairs next, posing downside risks for the Euro.

"The UK gets off lightly compared to other regions, like the EU," says Robert Wood, Chief UK Economist at Pantheon Macroeconomics. He thinks the UK would feel minimal direct effects from U.S. tariffs, as only 15% of British goods exports go to the U.S.

On this basis, Pantheon Macroeconomics estimates a 25% tariff on UK goods exports to the U.S. would cut British exports by only 0.2% of GDP, assuming price-elasticity of demand of -0.4.

One X user quipped on Monday that Trump would struggle to tariff UK goods because he will struggle to find anything that the UK actually produces, referencing the multi-decade decline of UK manufacturing.

There is some truth to the joke, as ONS figures for 2023 show the UK imported £57.9BN of goods from the United States and exported £60.4BN of goods, making for a neutral trade balance.

The UK does operate a trade surplus in services with the U.S., importing £57.4BN of services and exporting £126.3BN. However, services tend to fall outside the scope of tariffs, and it would be unusual for Trump to target deficits in services.

Trade Wars Suit Pound Sterling (For Now)_1

Image courtesy of Commonwealth Bank.

The Pound is attempting to claw back early 2025 losses, having fallen against all major peers in the first two weeks of the year.

Sterling is particularly sensitive to global risk sentiment and it's early 'tariff trade' outperformance could yet falter if global markets start to suffer amidst an escalating trade war.

That war started on Tuesday when China responded to the imposition of U.S. import tariffs with its own set of measures.

In response to America's 10% tariff, China will levy new tariffs on a range of American imports, including a 15% levy on coal and liquefied natural gas. Crude oil, agricultural machinery, large-displacement cars and pickup trucks now face a 10% tariff

A number of U.S. companies were sanctioned as "unreliable entities", including Calvin Klein and Tommy Hilfiger owner PVH, as well as Illumina (a gene sequencing company).

The Chinese measures announced also include export control on tungsten-related materials, a crucial raw mineral of which China produces about 80% of the world's supply.

Equity markets and commodities are softer on the developments. If the selloff grows in the coming days and weeks we might see GBP come under pressure against safe-haven names like the Dollar, Yen and Franc. It would however likely outperform AUD, NZD and even the EUR given the tariff threats facing the Eurozone.

Source: Poundsterlinglive

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Warren Takunda

Economic

Markets have taken the one-month delay in tariffs on Canada and Mexico as a signal that everything's negotiable. Even for China.

Canada's Justin Trudeau and Mexico's Claudia Sheinbaum got on the phone to Donald Trump on Monday and told him they had agreed to bolster border enforcement efforts.

Sheinbaum won plaudits from political analysts for her approach and investors seemed to relax - sort of.

Hong Kong shares touched a two-month high, led by electric vehicle makers, as investors turned more hopeful that China - hit by a 10% tariff - will end up cutting a deal.

The euro rebounded from a two-year low around $1.01 back to $1.03 in one of its biggest round-trips in recent years as fears of an imminent trade war seemed to subside.

Crypto traders bought the big dip in bitcoin and ether .

Yet, the wild ride has left so many things unclear. As J.P. Morgan's Michael Feroli points out, it has increased policy uncertainty in a way that is hard to reverse.

European stock futures rose only 0.1% in Asia.

Focus in the session may also fall on numerous results announcements spanning financials such as Amundi, UBS and BNP Paribas, as well as on businesses with exposure to tariffs such as Ferrari, Infineon and Diageo.

Google parent Alphabet reports earnings after market close in New York.

On China, Trump has said that tariffs "are going to go substantially higher" unless it stops "sending us fentanyl".

China says it has already cracked down on the drug trade and that fentanyl - a synthetic drug that is 50 times stronger than heroin - is a problem for the U.S. to sort out.

Trump's press secretary has said he will speak with Chinese President Xi Jinping in the next couple of days.

The outcome of that conversation, as well as how Beijing handles its dollar exchange rate when Chinese markets return from a week-long holiday on Wednesday, will be in focus.

Most expect the yuan's trading band fixing to be fairly steady. After Monday's rollercoaster, the offshore yuan - at around 7.31 per dollar - is still technically within the bounds of where the onshore trading band closed last week.

It is not clear what sort of deal Europe could cut to avoid tariffs that Trump has threatened.

Morning Bid: China Tariffs on, but Everything's Negotiable_1

A chart showing stock swings for General Motors and Ford Motor on news of President Trump's tariffs

Key developments that could influence markets on Tuesday:

- Earnings: Amundi, BNP Paribas, Dassault Systemes, Diageo, Ferrari, Infineon Technologies, UBS, Alphabet

Source: Reuters

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Warren Takunda

Economic

European shares extended losses on Tuesday, led by financials following UBS's quarterly earnings, as investors grew unsettled over fears of a trade war between top global economies, the U.S. and China.

The pan-European STOXX 600 index was down 0.3% as of 0940 GMT. The benchmark had logged its biggest single-day drop in more than one month on Monday.

China announced tariffs on some U.S. imports, starting from Feb. 10, in retaliation for Washington's 10% additional levies on Beijing, reigniting concerns about a trade war between the economies.

"The key driver right now is the trade tariff and just the uncertainty that seems to be coming with it," said Fiona Cincotta, senior market analyst at City Index, adding that latest developments will keep the markets "wary of a full-blown trade war erupting".

Financial Services index dropped 1.2%, dragged by a 5.1% fall in UBS Group despite the Swiss lender beating its fourth-quarter profit forecast. UBS CEO Sergio Ermotti said higher capital requirements in Switzerland would hurt returns for shareholders.

"Those comments would be sufficient to be able to put a dampener on otherwise upbeat numbers because that's sort of pointing to lower returns going forward," City Index's Cincotta said.

Diageo (DGE.L), opens new tab fell 3.6% after the world's top spirits maker withdrew its medium-term organic sales growth target as it took steps to try and mitigate the impact of U.S. tariffs on its tequila and Canadian whisky.

The stock brought down the food and beverages index by 0.9%. The energy index lost 0.8% as crude prices fell after U.S. tariffs on China took effect.

Telecommunications fell 0.8% as Vodafone dropped 5.6% after the mobile group reported another deterioration in Germany in its third quarter. The stock was the biggest percentage loser on the UK's FTSE 100, which fell 0.3%.

Embracer shares fell 43.4% ahead of the gaming group's spin-off by tabletop game publisher Asmodee.

Providing slight relief, U.S. President Donald Trump on Monday agreed to a 30-day pause in 25% tariffs on Mexico and Canada, in return for concessions on border and crime enforcement with the two neighbouring countries.

Trump has also threatened to impose tariffs on the 27-nation European Union, but did not specify when.

Infineon jumped 9.7% after the German chipmaker beat first-quarter revenue estimates and slightly raised its full-year revenue outlook.

The earnings lifted the technology index by 0.5%.

Among other stocks, France's BNP Paribas rose 2.2% after a forecast-beating jump in net income in the fourth quarter.

Source: Reuters

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Warren Takunda

Economic

Eurozone inflation rose more than expected in January, adding to economic uncertainty as investor sentiment remained pressured by the looming threat of US tariffs on Europe.

Annual inflation in the euro area rose to 2.5% in January 2025, up from 2.4% in December, according to a flash estimate from Eurostat. The reading exceeded economist forecasts, which had anticipated inflation to remain unchanged at 2.4%, marking the highest level since July 2024.

Core inflation, which excludes volatile energy and food prices, remained stable at 2.7%, defying expectations of a slight decline to 2.6%.

Among the key components of inflation, services recorded the highest annual rate at 3.9%, though slightly lower than the 4.0% recorded in December. The cost of food, alcohol and tobacco increased by 2.3%, a slowdown from the 2.6% seen the previous month.

Energy prices, however, surged to 1.8%, rebounding sharply from the 0.1% recorded in December, while inflation for non-energy industrial goods remained steady at 0.5%.

Among eurozone member states, Croatia posted the highest annual inflation rate at 5.0%, followed by Belgium at 4.4% and Slovakia at 4.1%. Ireland, Finland and Italy recorded the lowest inflation rates at 1.5%, 1.6% and 1.7%, respectively.

On a monthly basis, Slovakia and Lithuania experienced the sharpest price increases, both rising by 1.6%.

Market reaction: euro under pressure amid trade tensions

Despite the stronger-than-expected inflation data, the euro struggled to gain traction and remained under pressure due to growing concerns over US trade policy. The currency briefly found support at 1.0230 against the US dollar but was still down 1.2% on the day. Earlier in January, it had fallen to 1.0175, its lowest level since November 2022.

The US dollar strengthened broadly, rising 0.7% against the British pound. The Canadian dollar weakened by more than 1%, while the Mexican peso dropped 2.1% as traders reacted to trade tensions.

The currency market volatility came after US President Donald Trump reiterated threats to impose tariffs on the European Union. The administration had already enacted tariffs of 25% on Canadian and Mexican goods and 10% on Chinese imports, with Trump warning that Europe could be next.

Although he did not specify a timeline, he stated that new tariffs would be implemented "pretty soon".

Analysts suggested that markets had not yet fully priced in the risk of escalating trade tensions. BBVA's Alejandro Cuadrado noted that tariffs would likely remain a dominant market theme in the coming months.

"Tariffs will continue to dominate the markets, and some traders still believe they could be reversed. The full impact may not yet be priced into FX markets", he wrote on Monday.

ING's Francesco Pesole warned that the prospect of a global trade war, with tariffs extending to the EU, represented a clear downside risk for the euro.

He added that "the potential for a major US trade report in April could keep investors in a sell-the-rally mindset for EUR/USD".

Luca Cigognini, a market strategist at Intesa Sanpaolo, highlighted 1.0180 as a key technical support level for the euro, warning that, if breached, the currency could fall towards 1.0120.

European stocks slump, auto sector hit hardest

European equity markets fell sharply as trade concerns overshadowed inflation data. The Euro STOXX 50 dropped 1.9%, while Germany's DAX index slid 2%.

The car sector faced the steepest losses, as fears of US tariffs on European cars rattled investors. Volkswagen shares fell by more than 6%, Mercedes-Benz declined 4.9%, and BMW lost 4.5%. In Milan trading, Stellantis dropped over 7%, while tyre manufacturer Pirelli saw its stock fall by 5.5%.

The uncertainty surrounding trade policy and its potential economic impact led investors to seek refuge in sovereign bonds, pushing yields lower across Europe. German Bund yields fell by eight basis points to 2.40%, while France's OAT yields declined by six basis points to 3.15%.

Source: Euronews

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Trump’s Oil Tariffs Create Opportunities for European and Asian Refineries

Impact of U.S. Tariffs on Global Oil Trade

European and Asian Refiners Gain a Competitive Edge

Challenges for U.S. Refiners and Consumers

Strategic Shifts in the Global Oil Market